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body size in its inventory computations subsequent to Richardson
I. In the alternative, respondent determined that Investments
made an unauthorized change in method of accounting when it
changed the definition of its inventory units for its new car
pool from body size to model line in taxable year 1981.
Petitioner asserts that Investments did not make an unauthorized
change in method of accounting in either instance.
Section 446(e) provides that "a taxpayer who changes the
method of accounting on the basis of which he regularly computes
his income in keeping his books shall, before computing his
taxable income under the new method, secure the consent of the
Secretary."11 The Internal Revenue Code does not define the
phrase “change in method of accounting”. However, the
regulations under section 446(e) provide that a “change in the
method of accounting includes a change in the overall plan of
accounting for gross income or deductions or a change in the
treatment of any material item used in such overall plan.” Sec.
1.446-1(e)(2)(ii)(a), Income Tax Regs. Furthermore, with respect
to inventories, the regulations provide:
A change in an overall plan or system of identifying or
valuing items in inventory is a change in method of
accounting. Also a change in the treatment of any material
item used in the overall plan for identifying or valuing
items in inventory is a change in method of accounting.
[Sec. 1.446-1(e)(2)(ii)(c), Income Tax Regs.]
11 Consent is requested by filing an application on Form 3115.
Sec. 1.446-1(e)(3)(i), Income Tax Regs.
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